A universal life policy has the feature of providing for premiums to be paid by a policy owner into a non-unitised account to build up the account value of the policy. The policy account is invested at the discretion of the licensed insurer and the returns to the policy account are quoted based on annual crediting interest rates applied at the discretion of the licensed insurer. The account value of a universal life policy is used to fund the insurance protection for the policy owner and other fees and charges related to the policy.
Flexibilities of the universal life policy which are provided to the policy owner may include the following:
(a) premium top-ups, partial withdrawals and/or premium holidays; and
(b) changes to insurance coverage as the consumer’s protection needs or financial circumstances change, by adding or removing extensions of cover.
The principal-agent problem exists for universal life policies as the licensed insurer makes decisions on the investment choices and crediting rates of the account value while the policy owner bears the risks. The risks borne by a policy owner include investment risk to the policy account value and the long-term sustainability of the policy which can be affected by both the investment risk and other flexibilities accorded to the policy. Therefore, it is critical for a licensed insurer to:
(a) maintain high standards of governance in the management of its universal life business; and
(b) uphold high conduct and transparency standards in sales, marketing and disclosure of information, at all times, to aid informed decision-making by consumers.
The objectives of this policy document are to:
(a) facilitate the orderly development of universal life business in Malaysia;
(b) promote and maintain high standards of governance and professionalism in the administration of universal life business by licensed insurers; and
(c) enhance product transparency and ensure that policy owners are treated fairly.
This policy document sets out the following:
(a) the roles and responsibilities of the board and senior management in the licensed insurer’s management of universal life business;
(b) overall governance in the management of universal life business, including product design, imposition and revision of fees and charges, and management of expenses;
(c) investment, valuation and capital treatment of the universal life fund; and
(d) disclosure requirements to promote transparency to universal life policy owners.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
